Homeowners Choice Inc. Reports Operating Results (10-Q)
Homeowners Choice Inc. has a market cap of $38 million; its shares were traded at around $6.2 with a P/E ratio of 8.4 and P/S ratio of 0.6.
Highlight of Business Operations: Homeowners Choice, Inc. is a property and casualty insurance holding company incorporated in Florida in 2006. Through our subsidiaries, we provide property and casualty homeowners insurance, condominium-owners insurance, and tenants insurance to individuals owning property in Florida. We offer these insurance products at competitive rates, while pursuing profitability using selective underwriting criteria. Our principal revenues are earned premiums, which are reported net of reinsurance costs, and investment income. We cede a substantial portion of our earned premiums to reinsurers to mitigate risks primarily associated with hurricanes and other catastrophic events. Our principal expenses are claims from policyholders, policy acquisition costs, and other underwriting expenses. As of June 30, 2010, we had total assets of $150.6 million and stockholders equity of $45.8 million. Our net income was approximately $2.0 million for the six months ended June 30, 2010. Our book value per share increased to $7.48 as of June 30, 2010 compared to $7.03 as of December 31, 2009.
Policy Acquisition and Other Underwriting Expenses for the three months ended June 30, 2010 and 2009 of $2.7 million and $1.3 million, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, and premium taxes and policy fees. The $1.4 million increase in 2010 is primarily due to an increase in our commission expense specific to our renewal business, which accounted for $49.9 million of our direct written premiums in 2010 compared to $37.2 million in 2009. In addition, we experienced increases in our premium taxes, payroll and other underwriting expenses in 2010 reflective of the increase in renewal policy volume.
Our losses and loss adjustment expense reserves (Reserves), which are more fully described below under Critical Accounting Policies and Estimates, are specific to homeowners insurance, which is our only line of business. These Reserves include both case reserves on reported claims and our reserves for incurred but not reported (IBNR) losses. At each period-end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Our Reserves increased from $19.2 million at June 30, 2009 to $23.1 million at June 30, 2010. The $3.9 million increase in our Reserves during 2010 is comprised of a $11.4 million increase specific to the 2010 accident year offset by a reduction of $6.4 million, $1.0 million, and $0.1 million in our Reserves for 2009, 2008, and 2007 accident years, respectively. The $11.4 million in Reserves established for 2010 claims is due to the reported claims and policy exposure, which resulted in an increase in the number of reported losses in 2010. The decrease of $7.5 million specific to our 2009, 2008 and 2007 accident-year reserves is due to favorable development arising from lower than expected loss development during 2010 relative to expectations used to establish our Reserve estimates at the end of 2009. Factors that are attributable to this favorable development may include a lower severity of claims than the severity of claims considered in establishing our Reserves and actual case development may be more favorable than originally anticipated.
Policy Acquisition and Other Underwriting Expenses for the six months ended June 30, 2010 and 2009 of $7.0 million and $2.2 million, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production of policies, and premium taxes and policy fees. The $4.8 million increase in 2010 is primarily attributable to a $4.5 million increase in our premium taxes and other underwriting expenses directly attributable to policy renewals and a $0.3 million increase in our payroll and other underwriting expenses required to manage our policies in force.
Net cash provided by operating activities for the six months ended June 30, 2010 was approximately $27.7 million, which resulted primarily from the collection of $19.5 million from Citizens in connection with our December 2009 assumption transaction and $6.0 million in advance premiums offset by cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash provided by investing activities of $7.6 million was primarily due to the receipt of $12.2 million in proceeds from the sale of securities and $7.4 million from the redemption of short-term investments offset by $4.5 million used for new investments in fixed maturity securities and $7.3 million used to purchased assets, primarily the $7.1 million used for the purchase of our new Tampa facility. Net cash used in financing activities totaled $2.5 million, which was due to the repurchases during the period of our shares and warrants.
Net cash provided by operating activities for the six months ended June 30, 2009 was approximately $8.9 million, which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash used in investing activities of $9.4 million was primarily the result of our purchase of short-term investments totaling $7.5 million plus $1.9 million used to purchase fixed maturity securities. Net cash used in financing activities totaled $564,000, which was primarily due to the repurchases of our shares during the period.
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